Regional Differences in the Utilization of the Mortgage Interest Deduction

Abstract

The value of federal income tax deductions, such as the home mortgage interest deduction (MID), varies across geographic regions. This study uses 1995 tax data to investigate the extent to which the current mortgage deduction is used and how the utilization differs across regions. The authors show that substantial regional differences in using the MID are related to differences in income, the level of house prices, the rate and form of state and local taxation, and demographic differences that affect homeownership and the amount of mortgage debt. About 40% of the explained regional variation in itemization is due to regional differences in house prices; another 20% is due to differences in state and local income and property taxes. About two thirds of the explained regional variation in the average size of the MID is due to regional differences in housing prices and state and local income and property taxes.